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Colony case lingers into November

“If everyone wants me to keep making rulings that can be appealed, we can keep doing that.”

The comment from U.S. Bankruptcy Judge K. Rodney May was meant to urge Colony Beach & Tennis Resort parties to reach a settlement rather than allow the Chapter 11 bankruptcy case to continue.

If May’s wish is granted, the case will be resolved some time in November. But at an Oct. 10 hearing scheduled to review settlement progress, May heard more of the same from Colony parties.

The two-hour hearing included pleas from the Colony Beach & Tennis Resort Association to approve a submitted settlement next month, objections from Colony Lender LLC regarding the settlement and pleas from Colony Lender to liquidate and allow a sale of all the resort’s assets.

Colony Lender attorney Michael Assaf urged May again to take the case out of Chapter 11 bankruptcy so all of the resort’s assets can be sold.

“Sell everything, sell it all,” said Assaf, who explained it’s the easiest way to get all the pieces of the Colony reassembled as a whole and to get the best price for the assets and property. “Why aren’t we in a liquidation, exploring the sale of the assets? Let the Association and the interested developers bid on all of it.”

Colony Lender owns bank loans on Dr. Murray “Murf” Klauber’s property and is seeking to collect on a recent judgment of more than $13 million. Colony Lender already has a foreclosure sale scheduled on Dec. 6, for the liquidation of the assets Colony Lender has obtained.

Assaf also asked May to consider that Orlando-based Unicorp National Development Inc. is the more appropriate choice as the Colony’s future developer, noting the company is willing to give U.S. bankruptcy trustee William Maloney $2.3 million in cash to pay off creditors. The money would be available as soon as May approved the offer.

The settlement reached with the Association, Klauber and the trustee, meanwhile, gives the trustee $2.3 million over five years after a list of conditions are met.

Colony Association attorney Jeffery Warren, meanwhile, urged May to set times in November for a settlement confirmation and to hear appeals of the settlement.

Warren noted that a signed development agreement between the Association and selected developer JHM Financial Group LLC could occur next week at a public board meeting. Warren also explained the town of Longboat Key has set Dec. 31, as a deadline for a settlement before the town considers taking away grandfathered tourism density on the shuttered hotel site.

“If other parties had a better plan, they had two years to produce it and haven’t done so until now,” Warren said.

U.S. trustee attorney Jordi Gusso told May that discussions with Colony Lender are ongoing regarding a settlement, although Assaf noted Colony Lender has not had one conversation with the Association regarding a settlement.

And Assaf argued there is no valid Chapter 11 reorganization for the three Klauber-controlled entities because there is nothing left to reorganize.

May made it known he’s not willing to convert the bankruptcy case and explained that meaningful settlement talks with Colony Lender must occur for the case to come to any sort of a conclusion.

“A settlement that can maybe be produced from an A-list mediator could bring this case closure,” May said.

Assaf argued another round of mediation wouldn’t work.

Assaf also suggested the Association was seeking to “fix the price” of a settlement in May’s courtroom, by removing the liability of a $25 million judgment against unit owners, at the expense of the creditors.

Klauber would waive the judgment in exchange for a $3 million consulting fee as part of a signed settlement submitted to May. But that judgment, Assaf said, allows the unit owners to be sued and be held “individually responsible beyond the value of their units.”

Colony Lender argues there is value to the judgment against the Association because it’s collectible from unit owners.

“The settlement agreement most egregiously proposes to get rid of the judgment and then cram us (Colony Lender) down,” Assaf said. “It really is a forgiveness plan.”

May isn’t ready yet to convert from a Chapter 11 to a Chapter 7 liquidation.

May and the parties agreed to meet again Oct. 24 and Nov. 7 and Nov. 8, to review motions for judgment, the submitted signed settlement and the arguments and objections that come along with it.